The Queensland agriculture sector, its farmers and rural communities are no strangers to significant and continuing challenges, operating high throughput businesses while receiving little or no assistance from government to deal with escalating costs and reduced profit margins. With an impending Queensland state election, farmers wish to be heard by politicians in Brisbane and expect practical and considered solutions so they may continue supporting the economy and producing world class food, fibre and foliage into the future.
Water is one such critical agricultural input that has rightfully received significant policy consideration from politicians, and the Queensland Farmers' Federation welcomes any reduction in water prices that is supported by evidence-based policy on how these cost savings are to be implemented and sustained going forward. One change to water pricing methodology could be to move away from the current annuity model to a regulated asset base (RAB) approach. QFF has undertaken high-level calculations using a RAB approach which indicate that farmers may be better off initially by around 7 per cent in the first price path, however, prices may then be higher in the next price path due to infrastructure upgrades and essential works.
Under a RAB approach to irrigation water pricing, a regulated business, such as Sunwater, would recover an annual return on capital. The RAB contribution is determined by the current value of the assets plus capital works planned for the current price period, with each capital works project depreciated according to its asset type and project life. However, each scheme will have a different RAB and each RAB will change between price path periods, depending on the forecast capital costs. Under the current annuity approach, the capital costs of assets are translated into a series of annual charges applicable over the 30-year life of the assets, which results in gradual shifts in price.
Questions remain as to who would pay for the calculations and transition pathway should the methodology for irrigation water pricing change. Currently, irrigators pay for the Queensland Competition Authority's price path calculations and services. Another necessary consideration is how the current community service obligation payment, made to subsidise irrigation water service, would operate under an alternative costing model.
Additionally, according to the Queensland Competition Authority, a RAB based approach that resulted in lower prices in the short to medium term, would not be consistent with the current government pricing policy, indicating that the policy settings for water pricing also need to be reviewed. In order to transition to an alternative pricing structure, a comprehensive consultation program ascertaining the benefits and costs incorporating billing impacts for all agricultural customers in the medium and long term, along with identifying the objectives of customers in relation to maintenance and renewal of assets and the associated tariff and billing structure must first be completed.
QFF is exploring alternative pricing models for both irrigation and commercial water to ensure this critical input is both affordable now and into the future. We welcome the proactive water policy stances and announcements from Queensland politicians at this time particularly the recognition that the price of irrigation water is simply unsustainable for our sector. Without certainty to meaningfully reduce irrigation water prices, farmers may be left high and dry.
